The Ultimate Funded Trading Glossary
This glossary covers all key terms related to funded trading, prop firms, risk management, trading psychology, and advanced strategies. Whether you’re preparing for a prop firm challenge or already managing a funded account, understanding these terms is crucial for long-term success.
A
Account Scaling
A system where a proprietary trading firm increases the capital allocated to a funded trader based on consistent profitability. Firms may set targets such as achieving 10% profit over three months before increasing capital.
Active Trading Days
The minimum number of days a trader must place trades during an evaluation phase or funded phase to qualify for payouts. Some firms require at least 10 active trading days before withdrawal.
Algorithmic Trading (Algo Trading)
A method of trading where automated systems execute trades based on pre-programmed strategies. Many prop firms restrict high-frequency trading (HFT) algorithms due to the risks involved.
Ask Price
The price at which a trader can buy an asset. The difference between the ask price and the bid price is called the spread.
B
Balance
The total amount of capital in a trading account before considering open positions. Once a trade is open, equity (balance + floating profit/loss) becomes the more relevant metric.
Bid Price
The price at which a trader can sell an asset.
Break-Even Point (BEP)
The price level at which a trade results in no profit and no loss. A break-even stop-loss can be used to protect capital once a trade moves in the trader’s favour.
Broker
A financial institution that provides trading platforms for buying and selling assets. Some prop firms use their own liquidity providers instead of traditional brokers.
C
Challenge Phase
The first stage of a funded trading evaluation, where traders must meet specific profit targets and risk management rules. For example, a prop firm may require a 10% profit target with a 5% daily drawdown limit.
Consistency Rule
A rule that ensures traders demonstrate steady performance rather than relying on a few lucky trades. Some firms require that no single day’s profit exceeds 30% of total profits during an evaluation.
Copy Trading
A method where traders automatically replicate the trades of professional traders. Some prop firms prohibit this to encourage independent trading.
D
Daily Drawdown
The maximum amount a trader can lose in a single day before breaching their account’s risk limits. Most funded trading firms set daily drawdowns at 4–5% of the starting balance.
Demo Account
A simulated trading environment where traders practice without real money. Many prop firms use demo accounts during the evaluation phase and switch to real funds once a trader is funded.
Disqualification
The termination of a funded account or evaluation due to violating rules, such as exceeding drawdown limits, trading restricted assets, or using prohibited strategies.
E
Equity
The total value of a trading account, including floating profits and losses.
Evaluation Fee
The cost of entering a funded trading challenge. Some firms offer refundable fees if traders pass the challenge, while others do not.
F
Funded Account
A real trading account provided by a proprietary trading firm, allowing traders to trade with firm capital instead of their own. Traders typically receive 70–90% of profits while the firm takes the rest.
Funding Challenge
The evaluation process traders must complete to qualify for a funded account. Challenges typically have rules like profit targets, drawdown limits, and minimum trading days.
Forex (FX)
The global foreign exchange market, where currencies are traded in pairs such as GBP/USD or EUR/JPY. Many prop firms focus on forex trading due to its liquidity.
G
Gap Trading
A strategy that takes advantage of price gaps between market close and open, often seen after weekends or major news events.
H
Hedging
A risk management technique where traders open opposite positions in the same or correlated assets to reduce exposure. Some firms prohibit hedging due to its impact on capital allocation.
High-Frequency Trading (HFT)
An automated trading strategy that executes thousands of trades per second. Most prop firms ban HFT due to its high-risk nature.
I
Instant Funding
A funding model where traders receive capital immediately without passing an evaluation, often with a lower profit split.
Investor Allocation
The percentage of trading profits a trader can withdraw. Some firms have tiered models where traders can increase their profit split by maintaining consistency.
J
Journaling
The process of recording trades, strategies, and performance data to identify strengths and weaknesses.
K
KYC (Know Your Customer)
A regulatory requirement where traders must verify their identity before receiving payouts.
L
Leverage
The ability to control a larger position size than the account balance allows. For example, 1:100 leverage means a £1,000 account can control £100,000 in trades.
Liquidity
The ease with which an asset can be bought or sold without significantly affecting its price.
M
Max Drawdown
The maximum allowable loss before an account is terminated. Some firms have trailing drawdowns, which adjust based on the highest balance achieved.
Market Execution
A trade order that is executed immediately at the best available price.
N
News Trading
A strategy that focuses on economic events such as interest rate decisions or employment reports. Some firms ban news trading due to volatility risks.
P
Profit Split
The percentage of profits a funded trader keeps. Most prop firms offer between 70–90% profit share.
Proprietary Trading Firm (Prop Firm)
A company that provides traders with capital in exchange for a profit share.
R
Risk Management
The strategic control of losses through position sizing, stop-loss placement, and portfolio diversification.
S
Scaling Plan
A system where a trader’s funded capital increases based on performance milestones.
T
Trading Psychology
The mental and emotional aspects of trading, including discipline, patience, and emotional control.
W
Whipsaw
A market movement where prices rapidly change direction, leading to stop-loss triggers before continuing in the original trend.